Wednesday, 19 November 2008

In another great session at BBMK, a Milton Keynes Networking Group, we discussed hints and tips around cash flow, credit control and cash collection. Here’s some fantastic ideas here to help you ensure that cash remains ‘king’ in your business.

Remember turnover is vanity, profit is sanity and payment is reality!

60 Great Tips for Cash Control, Cash flow and Credit Control

1. Agree payment terms, invoice path, PO Numbers from the outset. Keep a paper trail from debtor day one and if on 30 days softly chase from day 15. Follow with a ‘low impact letter’ on day 31. Follow up every chase call with an email detailing the synopsis of your conversation, i.e. "Further to our conversation earlier today I shall look forward to receiving the cheque on Thursday as promised"2. Agree the cost for the year with your client and spread the cost over monthly retained payments. It will help win the business and means you can manage your cashflow accordingly3. Always allow for late payment, it’s unfortunately inevitable. In addition forecast and make a provision for non payment (Bad Debt Provision).4. ALWAYS send your invoices on the day that they should be raised5. Systemise your business when you are small – that way when you grow the process is already in place or needs minor ‘tweaking’6. Ask for a retainer each month to contribute towards your monthly costs allowing you to budget effectively.7. Be strict from the start – don’t let your clients get into the habit of paying late. If they pay late once and you didn’t address it then they’ll simply pay late again8. Be up front. When a sale is agreed make sure that the client is clear about the experience they will receive from you and the payment that you expect from them!9. Change ‘Payment within 30 days of Invoice’ to ‘Payment must be received within 30 days of Invoice’ be clear.10. Detail interest charges in your Terms and Conditions for late payment and don’t be afraid to apply them to clients that regularly pay outside of the agreed payment terms. Normally the threat of an interest charge is sufficient to receive prompt payment!11. Credit check every client – if they don’t pass ask for i) Payment Up front ii) Part payment up front iii) Letter from Director on headed paper confirming that payment will be received within terms. If they won’t agree to any of these steps don’t take on the business or look at alternatives like Escrow services.12. Dedicate a slot of time every day for raising invoices and credit control13. Discuss payment terms at the earliest opportunity14. Do as to others as you would yourself like to be treated, i.e. pay your own bills on time! Is nice as it may sound, don’t expect 60 days to pay your suppliers and for your clients to pay you within 30 days.15. Don’t ‘overtrade’ – it’s a posh term for spending what you haven’t got!16. Don’t be scared to stop supplying clients if they are behind on payment17. Don’t extend your payment terms without increasing your charge – why should you?18. Ensure that you communicate with your client through the payment terns – be open and honest with them and ensure that they know your expectations of receiving payment19. Factor all business – it might cost a few % but it takes the headache away and factoring firms are extremely good at cash collection!20. Focus on what you do best in your business and hand over debt collection to professionals. Debt collection agencies do as ‘it says on the tin’ they’re awfully good at debt collection!21. Send statements midway through the payment terms and follow the statement with a phone call.22. Don’t feel embarrassed about chasing money for a product/service that your client has been happy with!23. For big projects where your client is unwilling to commit to a retainer consider an Escrow service. This means your client will pay a third party that will hold the payment until the work is satisfactorily completed. Then when the client is happy with the completed project they will instruct the escrow provider to release the funds. As the supplier you have the ‘peace of mind’ knowing that you will be paid when you complete the project.24. Get friendly with the person who pays the bill. Often they are not the person that signed the order form and will have more influence in getting your invoice paid to your terms25. Adopt the GOYA Principle – "Get off your a**e"! i.e. don’t ‘stick your head in the sand’ and wait for payment, be proactive, politely chase it to 30 days. Thereafter if over terms start getting heavier and after 60 days treat it as debt recovery.26. Handling common credit control excuses:a. Common Excuse One: "I haven't received your invoice" - send another copy by fax, email and recorded post to the person you spoke to and phone to check it has been received and when you can expect payment.b. Common Excuse Two: "I'll deal with it shortly" – ask for an email/fax confirming when it will be dealt withc. Common Excuse Three: "The invoice wasn’t addressed correctly/The company name wasn’t accurate" - send another copy with appropriate amendments by fax, email and recorded post. Call in two days check it has been received, it is accurate and when you can expect payment.d. Common Excuse Four :"The cheque's in the post" – ask for the cheque number and postal date. Check your address is correcte. Common Excuse Five :"It didn’t have a Purchase Order Number" – ask for the purchase order number and send another copy with appropriate amendments by fax, email and recorded post. Call in two days check it has been received, it is accurate and when you can expect payment.27. Have excellent ‘sound and tight’ terms and conditions that have been thoroughly vetted by a commercial solicitor. Invest time and money now to get your terms and conditions right – at some point in the long term you will be grateful that you made this investment28. If a client is on 30 day terms then send out a statement after 14 days and follow with a call to ensure that the invoice has been received and that it’s all in order29. If a debtor goes into liquidation take advice but unfortunately in many cases you can do more then stick your ‘head in your hands’ and hope!30. If delivering a project then 35%/35%/30% payments are better for all parties than 50%/50%. It’s a genuine win-win for all parties that makes the payments easier to bear for your client and ensure you get a greater ‘chunk’ of the payment before the project is completed.31. If the cost benefit works then factor your business32. If the economy is going to run smoothly it requires everyone to promptly pay their suppliers.33. If you are charging a large sum to a client consider spreading the cost over a longer period. But, make sure you charge a premium to spread these payments.34. If you offer a service then take a deposit to cover your costs. Therefore, even in the worst case of the client not paying you will ‘break even’35. Keep promoting and advertising your products/services when you are busy36. Look after your staff, make them as efficient as they can possibly be37. Maintain ownership of your product until full payment is received. Don’t be afraid to withdraw your service if payment is not received.38. Make it easy for your client to pay – accept credit cards, debit cards as well as cheques, standing orders and direct debits (which normally require more than two authorised signatories and will therefore take more time)39. Make your payment terms explicitly clear before starting any work40. Negotiate favourable terms with your suppliers – ask for a discount for prompt payment41. Offer a charitable donation if payment is made early or within terms. Increase the amount the earlier that your invoice is paid. Make your client feel good about paying early!42. Phone your client before sending your invoice. Are they happy with the product/service you’ve provided? The fee we agreed was £x. Therefore you will receive an invoice for x. Payment terms are x days, etc. Can you confirm that the invoice should be addressed to, the invoice address, is a purchase order number required, etc. This has proven to help rapidly reduce debtor days and is a good example of excellent customer service.43. Put all of your ongoing running costs on direct debit and standing orders so you know how much money is going out and you’ll never be accused of late payment44. Regularly review your pricing structure and increase prices in line with your own increasing costs45. Remember in tough times if you’ve been fair to your suppliers and paid them promptly they are more likely to return a favour to you46. Remember the ‘Battle of the Forms’ – it is the final Terms and Conditions that have been received that will stand in court47. Picture two men fighting over a cow – one pulling the head and the other pulling the tail both shouting "my cow". Under the cow are two solicitors milking it! Disputes are expensive and should be the last resort after trying every avenue to effectively communicate your case directly with your client.48. Set up direct debits/standing orders for your clients to pay – it means that you will get paid on time and will allow you to predict your cashflow.49. Split a large invoice over equal monthly payments and collect by credit card. It is harder for a client to cancel a regular credit card payment than it is a direct debit or standing order.50. Systemise your business and have a written debt collection process and follow it! Have checks along the process (perhaps automating them) to ensure you keep on top of payment collection51. Take as much advise as you can when dealing with debt recovery. If you’re not sure how to do it and the correct procedures you will perhaps save money, time and stress by passing over to a debt collection agency.52. Take credit card details as a form of security/deposit. Charge a cancellation fee for ‘no shows’. Taking credit card payments rapidly improves cash collection53. Take out bad debt insurance against big projects or even all of your business54. Make purchases based upon money received and not orders taken!55. Take your invoice with you when you deliver the product. Perhaps even collect payment at the same time!56. There is a British Standard and Code of Practise for payment. Adopt this standard and work with clients that have also embraced this standard57. This needs to be detailed in your Terms and Conditions that your client signs from the outset but put 20% of the cost on the invoice which you will then deduct for payment within terms (many large advertisers do this)58. Treat anything over 60 days as debt recovery rather than collection – don’t delay in getting heavy after your payment terms are exceeded.59. With the adage in mind that a carrot always work better than a stick, offer a discount to your customers for payment that is received within 7 days or 14 days from the date of invoice.60. Your bank will often provide you with a free (or low cost)credit checking service

Once again, great thanks and credit must go to all of the members of BBMK who contributed these fantastic ideas and tips. We hope that you find them useful.